STATEMENTS MADE IN THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING WITHOUT LIMITATION THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATIONS, OTHER THAN STATEMENTS OF HISTORICAL INFORMATION, ARE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS MAY SOMETIMES BE IDENTIFIED BY SUCH WORDS AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "BELIEVE," "ESTIMATE" AND "CONTINUE" OR SIMILAR WORDS. WE BELIEVE THAT IT IS IMPORTANT TO COMMUNICATE OUR FUTURE EXPECTATIONS TO INVESTORS. HOWEVER, THESE FORWARD-LOOKING STATEMENTS INVOLVE MANY RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS. WE ARE UNDER NO DUTY TO UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS AFTER THE DATE OF THIS REPORT ON QUARTERLY FORM 10-Q TO CONFORM THESE STATEMENTS TO ACTUAL RESULTS.
OVERVIEW

Our primary focus is to provide real-time systems solutions, including equipment and software, and services to our customers in the areas of hydrological monitoring and control, meteorological monitoring including airport weather systems, oceanic monitoring and hydrological services. We design, manufacture and market these products and services to a diversified customer base consisting of federal, state, local and foreign governments, universities and engineering and hydropower companies. Our products and services enable these entities to monitor and collect hydrological, meteorological and oceanic data for the management of critical water resources, for early warning of potentially disastrous floods, storms or tsunamis, for the optimization of hydropower plants and for providing real-time weather conditions at airports.

Our key products are the SatLink2 Transmitter/Logger, Xpert/XLite datalogger, Accububble Self-Contained Bubbler, Accubar Pressure Sensor, Tides Systems and XConnect Systems Software. These are the essential components of most systems and are provided to customers as off-the-shelf equipment or as part of a custom system. The SatLink2 is a key product because it functions as a transmitter and logger. Because of its transmitter/logger functionality, it is a cost-effective solution for small systems that do not require a significant number of sensors or communications options. The Xpert and XLite are more powerful dataloggers that have more logging capability and more communications options than the SatLink2. Our Tides Systems are used by the National Ocean Survey in their network of approximately 225 stations in operation in the United States and its territories.

We anticipate that we will experience significant quarterly fluctuations in our sales and revenues which is not a fiscal year 2008 issue but historically reflective of our business. Operating results will depend upon the product mix and upon the timing of project awards. International sales, which totaled 40% of revenues for fiscal year 2007, continue to constitute a significant portion of our revenues. We are aware of many significant international opportunities and we expect international revenues to grow as a percentage of our total business. International sales are, however, difficult to forecast and international awards are frequently delayed due to the governmental approval process. We are committed to expanding our airport weather systems although we are relatively new in this market and compete against established firms with more experience. We are also committed to growing our hydrological services business, however, our primary customer in Florida has expanded the pool of qualified contractors on all major contracts. We therefore might receive lower contract amounts in 2008 due to the expanded list of qualified contractors. We are committed in our ongoing sales, marketing and research and development activities to sustain and grow our sales and revenues from our products and services. We expect our sales and marketing, research and development and general and administrative expenses to increase moderately in 2008 as compared to 2007.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of financial condition and results of operations are based upon the condensed financial statements, which have been prepared in accordance with generally accepted accounting principles as recognized in the United States of America. The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, the valuation of inventory, and valuation of deferred tax assets and liabilities, useful lives of intangible assets, warranty obligations and accruals. We base our estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For a complete description of accounting policies, see Note 1 to our financial statements included in our Form 10-KSB for the year ended December 31, 2007. There were no significant changes in critical accounting estimates.

RESULTS OF OPERATIONS
---------------------

The following table sets forth for the periods indicated the percentage of total
revenues represented by certain items reflected in our statements of operations:
 <CAPTION>
                                                         Three Months Ended September 30,
                                                    2008         2008         2007         2007
                                                 ----------     ------     ----------     ------
Net sales and revenues                           $4,395,775      100.0%    $6,607,220      100.0%
Cost of sales and revenues                        2,856,044       65.0      3,498,248       52.9
                                                 ----------     ------     ----------     ------
Gross profit                                      1,539,731       35.0      3,108,972       47.1
Selling, general and administrative expenses        892,955       20.3        824,463       12.5
Research and development expenses                   332,133        7.6        355,842        5.4
                                                 ----------     ------     ----------     ------
Operating income                                    314,643        7.1      1,928,667       29.2
                                                 ----------     ------     ----------     ------
Interest (income) expense                            22,224         .5         24,668         .4
                                                 ----------     ------     ----------     ------
Income before  income taxes                         336,867        7.6      1,953,335       29.5
Income taxes (benefit)                              150,000        3.4        735,000       11.1
                                                 ----------     ------     ----------     ------
Net income                                       $  186,867        4.2%    $1,218,335       18.4%
                                                 ==========     ======     ==========     ======

NET SALES AND REVENUES

Our net sales and revenues for the three months ended September 30, 2008 decreased 34% to $4,395,775 from $6,607,220 in 2007 due primarily to a decrease in project revenues. Overall domestic revenues decreased 12% to $2,546,070 in the third quarter of 2008 versus $2,903,386 in 2007 while international revenues decreased 50% to $1,849,705 in 2008 versus $3,703,834 in 2007. Record revenues were achieved in the third quarter of 2007 due to shipments of water level monitoring equipment totaling approximately $956,000 to customers in China for the Three Gorges Dam project and shipments totaling approximately $2,223,000 to Washington International Group for to the Iraq Ministry of Water Resources. Net sales and revenues are broken down between our operating divisions or profit centers which include the HydroMet Products Division, the Integrated Services Division which includes Special Projects, the Hydrological Services Division, Airport Weather Systems Division and Sutron India Operations.

The HydroMet Products Division, which is responsible for sales of standard products, had a net sales and revenue decrease of 28% to $2,278,103 from $3,183,025 in 2007. Standard product revenues were lower in 2008 due to prior year project shipments to China for the Three Gorges Dam project. Integrated Systems Division net sales and revenues decreased 38% to $1,604,501 from $2,592,340 in 2007 due primarily to the project shipment of equipment to Washington International Group for the Iraq Ministry of Water Resources in 2007. Net sales and revenues from the Hydrological Services Division decreased 39% to $393,640 from $644,861 in 2007 due to a decrease in project deliveries. Airport Weather Systems Division net sales and revenues were $162,030 for the third quarter of 2008 as compared to $0 in 2007 due to an AWOS shipment to Kenya. Sutron India Operations had a net sales and revenue decrease to $(42,499) from $186,994 in 2007 due to higher than expected costs to complete for the Central Water Commission (CWC) of India contract that is now in its warranty period.

Customer orders for the third quarter of 2008 were approximately $5,505,000 as compared to approximately $4,886,000 in 2007, a 13% increase.

COST OF SALES AND REVENUES

Cost of sales as a percentage of revenues was 65% for the quarter ended September 30, 2008 as compared to 52.9% for the quarter ended September 30, 2007. The increase in cost of sales is attributed to changes in the product mix that resulted in lower equipment sales and increased project work. The shipments to China for the Three Gorges Dam project and to Washington International Group for the Iraq Ministry of Water Resources had high content of standard products. In 2008, we had higher costs of sales due to project work with less standard product content. Cost of sales was also impacted by foreign currency losses of approximately $106,000 in the third quarter of 2008 as compared to foreign currency gains of approximately $70,000 in the third quarter of 2007. Cost of sales for both 2008 and 2007 include provisions for inventory obsolescence, physical inventory adjustments and inventory valuation adjustments. We continually pursue product cost reductions through continual review of procurement sourcing, product value engineering and improvements in manufacturing processes.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased to $892,955 in 2008 from $824,463 in 2007, an increase of $68,312 or 8%. We experienced increases in selling costs in India, in Sarbanes Oxley 404 compliance costs and in Board of Director compensation as compared to the same quarter in the prior year.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses decreased to $332,133 in 2008 from $355,842 in 2007, a decrease of $23,709 or 7.5%. Product development expenses decreased in 2008 due to lower costs relating to the development of several new products. Dataloggers and water level sensors are the primary components of hydro-meteorological systems and we are continuously improving these products as well as developing new products in order to maintain and improve our competitive position.

INTEREST INCOME AND EXPENSE, NET

Due to our cash position, we did not use its line of credit during the third quarter of 2008. We had net interest income of $22,224 in 2008 as compared to net interest income of $24,668 in 2007.

INCOME TAXES

Income taxes decreased 80% in 2008 to $150,000 from $735,000 in 2007. Taxes as a percentage of revenue were 3.4% in 2008 as compared to 11.1% in 2007. The provisions for income taxes represent effective tax rates of approximately 44.5% in 2008 and 37.6% in 2007, respectively.

NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2007

The following table sets forth for the periods indicated the percentage of total
revenues represented by certain items reflected in our statements of operations:

                                       12
 <CAPTION>
                                                            Nine Months Ended September 30,
                                                     2008          2008          2007          2007
                                                 ------------     ------     ------------     ------
Net sales and revenues                           $ 12,239,838      100.0%    $ 13,971,836      100.0%
Cost of sales and revenues                          7,865,910       64.3        8,041,655       57.6
                                                 ------------     ------     ------------     ------
Gross profit                                        4,373,928       35.7        5,930,181       42.4
Selling, general and administrative expenses        2,497,538       20.4        2,477,581       17.7
Research and Development expenses                     908,376        7.4          940,704         6.7
                                                 ------------     ------     ------------     ------
Operating income                                      968,014        7.9        2,511,896       18.0
                                                 ------------     ------     ------------     ------
Interest (income) expense                              88,653         .7           73,816         .5
                                                 ------------     ------     ------------     ------
Income before  income taxes                         1,056,667        8.6        2,585,712       18.5
Income taxes (benefit)                                364,000        3.0          934,000        6.7
                                                 ------------     ------     ------------     ------
Net income                                       $    692,667        5.6%    $  1,651,712       11.8%
                                                 ============     ======     ============     ======

Our net sales and revenues for the nine months ended September 30, 2008 decreased 12% to $12,239,838 from $13,971,836 in 2007. Overall domestic revenues decreased 12% to $7,557,168 in 2008 versus $8,590,425 in 2007 while international revenues decreased 13% to $4,682,670 in 2008 versus $5,381,411 in 2007, primarily due to decreased project work both domestically and internationally. Net sales and revenues are broken down between our operating divisions or profit centers which include the HydroMet Products Division, the Integrated Services Division which includes Special Projects, the Hydrological Services Division, Airport Weather Systems Division and Sutron India Operations.

The HydroMet Products Division had a revenue decrease of 11% to $6,669,084 from $7,481,684 in 2008 due to decreased international shipments. Integrated Systems Division revenues decreased 9.5% to $3,822,842 from $4,222,476 in 2007 due to decreased domestic project revenues. Revenues from the Hydrological Services Division decreased 26% to $1,195,480 from $1,625,059 in 2007 due to decreased project activity. Airport Weather Systems Division revenues increased to $427,541 in 2008 as compared to $75,425 in 2007 due to AWOS project shipments to Vietnam and Kenya. Sutron India Operations had a net sales and revenue decrease of 78% to $124,891 in 2008 from $567,193 in 2007 due to the Central Water Commission (CWC) of India contract being in the warranty period and near completion.

Customer orders or bookings for the first nine months of 2008 were approximately $10,401,000 as compared to approximately $20,689,000 for the first nine months of 2007, a 50% decrease. Our backlog of orders at September 30, 2008 was approximately $8,700,000. The backlog total as of September 30, 2007 was approximately $10,275,000. We anticipate that approximately 40% of our backlog as of September 30, 2008 will be shipped in 2008.

COST OF SALES AND REVENUES

Cost of sales as a percentage of revenues was 64.3% in 2008 as compared to 57.6% in 2007. The increase in cost of sales is attributed to changes in the product mix that resulted in projects with lower standard product content. Projects that do not have high standard product content do not carry as high margins as those consisting primarily of standard products. In 2008, we had higher costs of sales due to project work that had lower standard product content and lower margins. In 2007, the shipments to China for the Three Gorges Dam project and to Washington International Group had high content of standard products and higher margins. Foreign currency losses for the nine months ended September 30, 2008 were approximately $145,000 as compared to a gain of approximately $159,000 in same period of 2007.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased to $2,497,538 in 2008 from $2,477,581in 2007, an increase of $19,957 or 1%. The increase is primarily due to increased sales and marketing activities in India.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses decreased to $908,376 in 2008 from $940,704 in 2007, a decrease of $32,328 or 3%. Our SatLink2 Transmitter/Logger, our Xpert / XLite Dataloggers, our Water Level Sensors and our Tides Systems are the primary components of our hydro-meteorological systems and we are continuously improving these products as well as developing new products in order to maintain and improve our competitive position.

INTEREST INCOME AND EXPENSE, NET

Due to our cash position, we did not use our line of credit during the nine months ended September 30, 2008. We had net interest income in 2008 of $88,653 as compared to net interest income of $73,816 in 2007.

INCOME TAXES

Income taxes decreased 61% in 2008 to $364,000 from $934,000 in 2007 due to the decrease in operating income. Taxes as a percentage of revenue were 3% in 2008 as compared to 6.7% in 2007. The provisions for income taxes represent effective tax rates of approximately 34.4% in 2008 and 36.1% in 2007, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $5,106,823 at September 30, 2008 compared to $5,299,904 at December 31, 2007. Working capital increased to $12,383,574 at September 30, 2008 compared with $11,563,550 at December 31, 2007.

Net cash provided by operating activities was $829,193 for the nine months ended September 30, 2008 as compared to cash provided by operating activities of $1,044,032 for the nine months ended September 30, 2007. The decrease is primarily due to the decrease in operating income.

Net cash used by investing activities was $968,813 for the nine months ended September 30, 2008 as compared to cash used by investing activities of $7,270 for the nine months ended September 30, 2007. The increase is due to an increase in restricted cash in 2008 related to a performance bond issued to the Ministry of Energy and Water in Afghanistan.

Net cash used by financing activities was $3,214 for the nine months ended September 30, 2008 as compared to net cash provided by financing activities of $37,492 for the nine months ended September 30, 2007. The decrease is due to proceeds from the exercise of employee stock options being down in 2008 as compared to 2007.

We have a revolving credit facility of $3,000,000 with BB&T Bank. We are permitted to borrow based on accounts receivable and inventory according to pre-established criteria. The credit facility expires on August 5, 2009 and is secured by substantially all or our assets. Borrowings bear interest at the bank's prime rate. During the first nine months ended of 2008, there were no borrowings on the line of credit. We frequently bid on and enter into international contracts that require bid and performance bonds. At September 30, 2008 and December 31, 2007, a commercial bank had issued standby letters of credit in the amounts of $1,053,580 and $1,652,818, respectively that served as either bid or performance bonds. The amount available to borrow under the line of credit was reduced by these amounts.

Management believes that our existing cash resources, cash flow from operations and short-term borrowings on the existing credit line will provide adequate resources for supporting operations during fiscal 2008.